RAJASTHAN SYNTEX LIMITED Vs. KIRLOSKAR OIL ENGINES LIMITED

JUDGEMENT

(1.) ADMIT. Learned Counsel for the parties waive service. By consent heard and disposed of at final hearing.

(2.) THE law in relation to the grant of injunctions in respect of Bank Guarantees especially unconditional and irrevocable Bank Guarantees is, indeed, well settled. In a long line of decisions, the Supreme Court has held that injunctions restraining the invocation or encashment of Bank Guarantees should not be granted unless a case of established fraud is made out or a case where irretrievable injustice is likely to be caused unless an injunction were to be granted. Trial Courts have to exercise a degree of circumspection while passing ex parte orders. This is all the more so when what is sought is an injunction against the invocation of a Bank Guarantee. In the present case, the Learned Civil Judge, Senior Division, Pune proceeded to pass an order of status-quo in relation to the invocation of the Bank Guarantee in question, an order which has in substance the effect of operating as an order of restraint and injunction on the encashment of the Bank Guarantee involved in the case. This order was passed by the Trial Court in the absence of the Appellant herein, the Original First Defendant, though the Appellant had filed a Caveat. The Trial Court was of the view that despite the Caveat, an order of injunction was called for because if an injunction was not to be granted, it would cause irreparable loss to the First Respondent. Upon the grant of the order of status-quo on 30th October, 2000, the matter was adjourned to 9th November, 2000. A reading of the order passed by the Trial Court, ex-facie, would demonstrate that the Learned Trial Judge has completely failed to have regard to the well established tests which have been laid down by the Supreme Court and by this Court in respect of the circumstances in which the invocation or encashment of a Bank Guarantee can be injuncted. Ordinarily, in view of the fact that the Trial Court has adjourned the hearing of the matter upon the grant of the ad-interim order to 9th November, 2000, this Court would have been inclined to relegate the parties to contest the matter on merits before the Trial Court. However, having considered the issue carefully, I am of the view that the matter involves a question of principle. Passing of exparte orders in the manner in which it has been done in the present case, particularly in matters relating to the invocation or encashment of Bank Guarantees, is a mater of serious prejudice to parties against whom such orders are passed. The object and purpose of furnishing an unconditional Bank Guarantee is to ensure that obligations which are assumed by the Bank will be duly fulfilled. Therefore, the passing of an ex-parte order, as has been done in the present case, which operates to restrain the encashment of the Bank Guarantee without even a bare application of mind to the question as to whether a case for the grant of injunction was made out in terms of the law laid down by the Supreme Court, is something which has to be set right in the wider interests of maintaining the probity of the process.

(3.) THE brief facts leading to the present case are that a contract was entered into on 21st July, 1998 by which the Appellant agreed to purchase a Fuel Diesel Generating set together with related accessories, auxiliaries, spares and tools from the First Respondent. Under the terms of the contract, a performance Bank Guarantee was to be furnished of a nationalised Bank in favour of the Appellant which was the purchaser. Clause 11 (ii) of the contract made the following provisions in this regard :